AirAsia received RM249m subsidy for rural flights

By Shannon Teoh

November 03, 2011

KUALA LUMPUR, Nov 3 — AirAsia was paid RM249 million in public funds to subsidise the budget carrier’s rural flight services in Sabah and Sarawak between August 2006 and September 2007, the government said today.

Deputy Transport Minister Jelaing Mersat also told Parliament that when Malaysia Airlines (MAS) took over the routes from the low-cost airline’s subsidiary Fly Asian Xpress (FAX) in October 2007, “they needed less than half the amount of subsidy.”

“Between August 1, 2006 and September 30, 2007, the subsidy paid to FAX was RM249 million.

“MASwings only needed less than half the subsidy as it is more organised and uses newer aircraft which cost less to maintain,” the Saratok MP said.

The return of the rural air services (RAS) routes to MAS after just 14 months had raised concerns of whether it would affect the national carrier’s turnaround plan under then chief executive Datuk Seri Idris Jala.

But then Transport Minister Tan Sri Chan Kong Choy had said that it would continue subsidies of RM60 million per year to retain low fares.

Pendang MP Datuk Mohd Hayati Othman said in Parliament today that the government overpaid RM65 million in subsidies to FAX, which was later restructured to AirAsia X, a long-haul budget service, as it ended its RAS prematurely.

The PAS man also claimed that MAS had to spend RM35 million to modify seven aircraft to ply the rural routes in Sabah and Sarawak.

MAS’s poor financial performance of late had resulted in the share swap with AirAsia on August 9.

It saw state investment arm Khazanah Nasional taking a 10 per cent stake in Asia’s top budget carrier in exchange for a 20.5 per cent stake in MAS.

This allowed AirAsia boss Tan Sri Tony Fernandes to sit on the MAS board, ostensibly to help turn the ailing airline around.

MAS had announced in August a net loss of RM527 million for the second quarter of 2011 due to higher fuel costs despite recording a better yield and a nine per cent growth in passenger revenue from the same period last year.

This brings total losses in the first half of the year to RM769 million even as the airline said that profit outlook for the second half of the year appears bleak.